4 Reasons to Avoid Dividend-Paying Stocks
Dividend stocks pay you to own them. But is there a catch? Sort of. Stocks that pay dividends have their downsides, or traits that may run contrary to your financial goals. Read on to learn about four of these traits and how to evaluate whether dividend payers fit within your investment strategy.
Dividend stocks produce taxable income unless you're holding them within a tax-advantaged account like an IRA or a 401(k). If you don't have an account that defers taxes on earnings, you will pay taxes annually on the dividends you receive. This is true even if you reinvest those dividends.
Most dividends paid by U.S. companies are taxed as long-term capital gains. In 2022, that tax rate is either 0%, 15%, or 20%, depending on your income. Higher income households may also owe a 3.8% surtax on net investment income.
Source Fool.com
